NFTs and Crypto Art, Fungible Bubble Or Non-Fungible Mania?
In recent months, interest in NFTs (non-fungible tokens) and Crypto Art grew exponentially. (If you don’t know what is an NFT, here is a little guide for beginners.)
Because of the exorbitant value of some works, the art market is generally inaccessible to ordinary people. What if you could only buy a portion of it and share the property with others? It is possible, it is tokenization.
Tokenization is the process of creating a non-fungible token in blockchains that represents an underlying asset and its value. Tokenization could revolutionize many creative disciplines, including the art industry.
So, why tokenize art? The advantage of using this process is that any asset can be digitized while ensuring its transmission between different owners goes smoothly. Two NFTs will never be identical and interchangeable, each one will have specific characteristics which will define it.
A Bubble Bound To Burst
First reaction (very common): Why would someone buy crypto art, far less to spend millions on anything that is simply a JPEG file?
First of all, absolutely must not confuse NFTs and Crypto Art. They are two different things even if they are closely related.
Crypto art refers to artwork using blockchain technology. It is a new category of digital art. This definition is very large and fuzzy which is quite logical since the discipline is relatively recent, and we have not yet determined the nuances and boundaries of this art. Crypto art is booming, with a new digital aesthetic, and offers a solution to the threat that artists face when their artwork is copied by unauthorized people, causing their work to depreciate. Conceptual artist pushing the boundaries of crypto art.
NFT is a property of blockchain technology, define by ERC-721 (non-fungible digital assets) and ERC-1155 (semi-fungible assets) Ethereum standards. The key properties of NFTs are: indivisible (cannot be broken down into fractions), verifiable (a unique identifier that specifies who owns it), and indestructible (cannot be destroyed or removed). NFTs can contain anything digital, including drawings, graffiti, animated GIFs, songs, or items in video games. NFTs are certainly the next big in the blockchain world.
We can easily think of Crypto Art as a bubble. But I don’t think so. It is not just my opinion. The market has already proven it, with the work of the world’s most popular artists, like Banksy and, Beeple going for $69 million. The total value of NFT trade in 2020 was $250 million, up 299% from the previous year, and continue to grow in 2021.
Why Should We Care?
Many people who were involved in NFTs early on and began trading them have seen phenomenal returns. But we’ve officially joined the cyberpunk age, with a culture completely digitized, and the art community is already heading towards NFTs, and it is just the beginning.
NFTs produce digital scarcity where none previously existed. It doesn’t really matter if you can screenshot them, for example. Consider this: is a flawless reproduction of a Van Gogh painting worth the same as the original?
Nonetheless, what makes great NFT art? The spirit of time, the Crypto Age.
Why do many observers use the Internet in their Crypto World metaphors? Our digital networks, which were designed to improve our basic interconnectedness, have the potential to change everything. And, indeed, the blockchain sparked a revolution. It presents itself as if they are destroying the old and beginning something new.
NFTs can catch the spirit of this generation and will be valued in the future. That is the thing that makes NFTs important. However, it was not a renaissance.
One of the key reasons people have been gravitating toward NFTs as a potential alternative is the lack of digital scarcity in the creator economy. The curiosity has skyrocketed.
Creator economy
It’s difficult to track down the buyers who are driving this craze. NFTs will also control the framework of the license agreement when they are directly incorporated with blockchain technologies. NFTs’ decentralized nature is a major factor in how they can provide vital digital resources for the creator economy.
NFTs can be programmed to pay a cryptocurrency fee to their developers every time they change hands. If a buyer of one of the parts resells it, the creator retains for example 10% of the original purchase price. It’s worth noting that an infinite number of NFTs can be generated. The number of copies made is determined by the use case of each creator.
NFTs will also control the framework of the license agreement when they are directly incorporated with blockchain technologies.
Pitfalls and challenges
In practice, NFT is still far from user-friendly and open to the public, even worse than cryptocurrency. In most cases, you’ll need to know how to set up and use an Ethereum wallet, buy things, and be able to pay transaction fees while buying NFTs.
In general, people are afraid that we are in the middle of a bubble, and that the appeal that NFTs have built over the last few years will quickly fade away. Many observers expect NFTs will be old-fashioned speculative operations for the near future.
And finally, new ways of copyright infringement have emerged but they can also provide artists with a way to make more money on the Internet. A new form of property brings new forms of piracy. A new challenge.
Regulation
Since NFTs are still a relatively recent innovation, there is no simple legal mechanism surrounding them; instead, they are regulated by national and international legislation. But regulators are working on these mechanisms and they are coming soon.
In Europe, some countries Switzerland, Germany, Estonia, and Malta, among others, have issued ICO-related guidance or legislation.
It is clearly conceivable to attach the NFT to the digital token in law. It is an intangible asset in digital form and represents one or more rights: the NFT has a value that is specific to it. The owners are identifiable, attaching the pseudonyms or the addresses used.
But can we consider CryptoPunks or CryptoKitties as a piece of art, legally speaking? The question is complex. It is very difficult to include or exclude them in this category. Difficult to include them, because the NFT clearly box in a different category than the works listed. But also difficult to exclude them, because the law evolves and the definition of work is very subjective.
Final thoughts
The NFT space can help creators capture a larger share of the profits of whatever they create and sell. When creators use an institution to distribute their content, they only get a small portion of the profit. The clearest example of this is book authors signing deals with large publishers, or musicians with record labels.
NFTs have exploded around the world with creators, artists, and musicians embracing the digitally-unique tokens. If implemented widely, NFTs could be a game-changer in the digital scarcity problem.
NFT mania has the potential to solve previously unsolvable problems in many ways and in many industries.
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